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All about risk management
Before coming to risk
management, it is important to know what
the term “risk” refers to. In simple
words, risk can de defined as the
uncertainty of the end result. After
taking an action, when uncertainty of
the outcome prevails, it is referred to
as risk. Risks are involved in all walks
of life. For instance, buying a new
house or setting a new business all have
certain amount of risk associated with
it. Today, the field of risk management
is so diverse that fields such as
software or business risk management
have become professional fields. The
general steps practiced or understood in
risk management are as follows –
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Risk identification
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Finding the probable occurrence of risk.
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Finding out the consequences of risk
when it occurs.
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Determining methods to reduce risk.
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Minimising the possibility of occurrence
of risk.
Before a new venture is
started, all the kinds of risks that
could occur are identified. For
instance, if people are crossing a
street, they expose themselves to the
risk of meeting with an accident. In
this scenario, the least outcome is
sustaining minor injuries. The work
result is being killed. How can one
reduce the occurrence of risk? In this
example, it would be to cross the street
by finding the closest pedestrian
crossing. This reduces the risk
associated with crossing a busy or
crowded street.
For any project, risk
management follows the same fundamental
principles. When credit card firms issue
credit cards, they usually run
credibility checks prior to issuing the
card. Checks are run in order to se
whether the consumer is in a position to
pay off their bills. The credit card is
issued based on the consumer’s expenses
and income. If the credit card companies
feel that a particular consumer comes
under the high-risk category, then the
credit limit will be capped accordingly.
Insurance companies too
are at a risk while selling insurance.
For instance, considering the case where
an insurance firm trades general
insurance. If the firm discovers that
80% of a particular building is insured
by them, then they would “spread” the
associated risk. This will be done by
getting the underwriting firms to cover
some portion of the insurance. In cast
the building gets burnt due to a fire,
and then the insurance firm along with
the underwriting firm will bear the
losses. However, if the risk is not
spread by the insurance firm, then
chances that the insurance as well as
the firm could fold up with the
occurrence of such an event.
The general idea with
regard to risk management is that it is
necessary to try and reduce the
probability of the occurrence of a
disaster. In risk management, it is
vital that the chances for risk
occurrence is either avoided or reduced.
Certain unknown risks that could occur
are usually overlooked in risk
management. These risks which cannot be
avoided are generally left out as they
do not come in the scale of risk
management. |
